When Should You Hire a Forensic Accountant?

You could easily be in business for a long time without running into the need to hire a forensic accountant. In fact, many business owners and managers never wind up reaching out to someone in this profession – they get by with a standard accountant and don’t run into any problems that require a specialist.

Not everyone is in that boat, however. Forensic accounting is an important field that can help businesses deal with fraud and other important matters that could harm the financial well-being of the organization. It’s important to know what forensic accounting brings to the table so you can act quickly when something comes up that requires a closer look.

Thinking about hiring a forensic accountant but don’t know where to start? We can make things simple for you – just reach out to Space Coast Forensics today and chat with us about your needs. Whether or not hiring a certified fraud examiner is the right choice for you is yet to be seen, but it can’t hurt to gather more information on this matter. We appreciate your visit and hope that you’ll take a moment to get in touch today.

What Does a Forensic Accountant Do?

It’s likely that you have a pretty good understanding of what a regular accountant does and when you would need to hire one. Accountants are most associated with tax preparation, but they are used throughout the year for businesses and individuals alike. In fact, if you own or run a business, you probably have an ongoing relationship with an accountant or accounting firm.

Forensic accounting is a specialization within the greater field of accounting. A forensic accountant is specifically focused on finding and tracing discrepancies in the books, catching cases of fraud, and settling financial disputes. So, if it seems like something might be amiss within the financial activities of a business, a forensic accountant is likely to be called in to sort through the evidence and figure out what is going on. Law enforcement agencies will even turn to forensic accountants to help them understand financial crimes and produce evidence that can be used in court. This is a niche field that requires a set of specialized skills to master.

In addition to law enforcement agencies, forensic accountants will also be hired by businesses to inspect their books, insurance companies to look into claims, law firms to serve as expert witnesses, and more. In some cases, a forensic accountant will be hired by an individual for help with a divorce proceeding where some type of financial fraud is suspected. The investigative skills developed by a forensic accountant help to uncover crafty schemes and theft that might have otherwise gone unnoticed.

An experienced forensic accountant will use many different types of tools and techniques to uncover secrets in financial documents. Sometimes, that means using high-tech software to help parse massive data sets in the hunt for anomalies that stand out and point to fraud in the financial data. In other cases, it will mean using more traditional investigative techniques like interviewing the various parties involved in the case. However it plays out, the job of the forensic accountant is always to get to the bottom of what is going on to provide answers and clarity to the right parties.

Six Classic Types of Cases

Knowing when to hire a forensic accountant largely comes down to taking a look at what type of situation you are in and what work needs to be done. If there is any kind of financial investigation that is going to be required, the help of a forensic accountant is probably suitable. Let’s take a look at six different types of cases that all may call for the support of forensic accountants.

Suspected Financial Fraud

If there is a “wheelhouse” case for a forensic accountant it is one where financial fraud is suspected and a full investigation needs to be performed. In many ways, this is what forensic accountants do best – they work through detailed financial information, tracking transactions along the way to get to the heart of the matter and figure out where the money went and why. Sometimes, the use of accounting and investigative techniques will uncover a fraud scam or scheme, while in other cases it will just reveal some problems with the accounting system and no illegal activity at all.

Perhaps the most important part of this whole process is getting the forensic accountants involved as quickly as possible when investigating potential fraud. Many forensic accountants know the feeling of working from behind as the fraudster has a big head start in terms of the timeline of their crimes. That doesn’t mean they won’t be caught in the end, but with each passing day, it gets harder and harder to collect evidence and recover money that was lost.

Forensic accounting professionals use many different tools and techniques on the job when trying to prove fraud. They’ll dive deep into the list of financial transactions that have taken place, of course, but that’s only the beginning. Sometimes, the job will look more like traditional detective work, with interviews being required to find out what people knew, what they saw, and who may be to blame for the situation. A good forensic accountant will work just as hard as a law enforcement detective to resolve a crime and provide evidence to back up the findings.

Divorce Proceedings

It’s also common for a forensic accountant to be used when two people are getting divorced. Of course, plenty of divorces are completed without the use of forensic accounting, but there are times when the specific skills delivered by this type of professional can be helpful in bringing the matter to a resolution. Specifically, it’s often the case that one spouse will choose to hire a forensic accountant in an attempt to track down assets that they suspected are being hidden from the other party. If the other member of the relationship has hidden assets, those need to be found so they can be included in the division of property and a fair settlement can be achieved in the end.

To find hidden assets, forensic accountants can use a range of different tactics and techniques. They will look carefully over financial records to trace the path of any money that has been coming in, and determine where it all has been going. If those records seem to point to something missing, that will serve as financial evidence that one person is trying to cover something up, and more investigation is required. Experts at breaking down financial data to uncover financial crimes and various other improprieties, forensic accountants can be extremely helpful when a divorce is strongly contested and neither side wants to give an inch.

Insurance Claims

One of the biggest risks faced by insurance companies is paying out too much in claims. When a claim is filed, the insurance company will often need to investigate that claim – depending on the dollar amount – to confirm that it is accurate and reasonable given the circumstances. As part of that process, forensic accountants may be used to follow the money trail, look for any signs of fraud, and identify whether or not the claimed amount is accurately reflected by the facts of the case.

It is the investigative skills of a forensic accountant that makes this type of professional such a good fit for the insurance claims world. Forensic accountants know how to go over financial data to track spending accurately, they know what financial documents to look for in cases of suspected fraud, and they can even provide litigation support as expert witnesses when a case winds up in court.

Bankruptcy Process

When a business files for bankruptcy protection, there are often more questions than answers at the beginning of that process. What went wrong? How did the business end up in such a state of financial distress that it has no other options but to file bankruptcy? Is this filing even legitimate and should it be approved? There is a lot to figure out, and often, a big part of that figuring out comes down to forensic accountants doing what they do best. Using forensic accounting to unravel the financial evidence and identify any potential fraud or mismanagement that led the business to this point is a big part of the process in many cases.

Given the money that can be at play for a variety of different parties, making sure everything is at it seems in a bankruptcy proceeding is important. Fraud investigations are often central here, to make sure the business isn’t bankrupt because of the illegal activities of someone within the organization. If there is fraud involved, asset recovery may be possible in some cases, which can help the situation. A thorough forensic accounting review can bring a lot more clarity to a situation that may have seemed particularly cloudy at the start.

Fraud Risk Management

Things don’t have to already be going wrong for forensic accounting to be used to help a business stay on track. In fact, prior to running into issues with fraud is the best time to use forensic accounting, as this will allow you to manage your level of fraud risk and dramatically lower the chances that you’ll run into problems in the future. Fraud risk management involves proactively putting systems and measures in place to limit the possibility that anyone will be able to successfully perpetrate fraud within the organization moving forward. Does this mean you can completely eliminate the possibility that fraud will occur? Of course not – but it’s a big step in the right direction.

Reviewing the existing internal controls of a business is usually where this process will start. Forensic accounting will look at who in the business might have too much power, or too much access, with regard to the financial system. Would it be easy for someone to execute fraud without much oversight or much chance of being caught? These kinds of holes can be patched up right away with changes to the structure of the business, and it will be less tempting for anyone to attempt a fraudulent plan as a result of those changes.

Dissolving a Partnership

Business partnerships tend to start out with the best of intentions, but that’s not always how they end. Sometimes, these types of relationships turn sour and need to be dissolved. When that is the case, there usually isn’t much trust left between the parties, so forensic accounting can be used to make sure the financial evidence supports whatever agreement is put in place for the parties involved to go their separate ways.

In many ways, this is similar to how forensic accounting can help settle divorce cases, only here, the financial web may be more tangled because of the nature of running a business. There are likely to be plenty of various assets to value, and countless transactions to be sorted out. This can be quite a messy situation in the case of a business that operates at a high volume, so it’s up to someone with the experience and knowledge necessary to work through all of the financial documents to get it right in the end and ensure a fair dissolution.

How to Pick the Right Forensic Accountant for Your Needs

With so many different reasons on the table to hire a forensic accountant, it’s important that you wind up picking the right one for your situation. What skills and experiences do you need your forensic accountants to have for the specific task you have in mind? While everyone in this field is trained in the various techniques that can be used to untangle a messy financial situation, some firms and some individuals have worked on a given type of project more than others.

To make sure you are hiring the right forensic accountant for your situation, the best thing you can do is just contact a few and have some conversations. In talking to some professionals in this field, you’ll get a good sense of who has the experiences that line up with your needs, and also who will be affordable in your situation. Picking a certified fraud examiner to make sure your interests are protected in any kind of financial dispute is a critical task, and getting it right often just comes back to talking to people and getting to know what they are all about. Whether it’s litigation support, general forensic research, asset identification, an internal audit, or anything else that falls under the forensic accounting umbrella, get started by chatting about each firm’s capabilities and go from there.

Forensic Accountants You Can Trust

Space Coast Forensics is a leader in this space because of the blend of experience, accounting knowledge, and education that we bring to each of our clients. Whether you need us to dive deep into financial records, look for financial evidence of a crime, or perform any other role in the forensic accounting world, we won’t hesitate to dive in and get to work. Please feel free to reach out with any questions and hopefully we can work together shortly. Thank you for stopping by!

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